Opinion
No. 3:98 CV 0341, 3:98 CV 0342
July 10, 2000
Phillip R. Scaletta III, Indianapolis, IN;, John R. Jacus, Dean C. Miller, Adam S. Cohen, Denver, CO, Maureen J. Grimmer, Hammond, IN, for Plaintiffs.
Frank J. Deveau, Indianapolis, IN, for Defendants.
Maureen Grimmer, Hammond, IN, for Plaintiffs.
MEMORANDUM AND ORDER
This cause is before the Court on cross motions for partial summary judgment. On May 31, 2000, the Plaintiffs filed a Motion for Partial Summary Judgment of Liability against Defendant Waste Management of Indiana, L.L.C., and on the same day, Defendants Waste Management, Inc. and Waste Management of Indiana, L.L.C. (collectively "Waste Management") also filed a Motion for Partial Summary Judgment as to their liability. Oral arguments were held before the Court on June 28, 2000. The parties have fully briefed the issue, the Court has considered the submissions of the parties, and now rules as follows.
JURISDICTION
This cause of action arises under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERLA), 42 U.S.C. § 107(a) and 113(f), as amended, 42 U.S.C.A. §§ 9607(a) and 9613(f). Jurisdiction is proper pursuant to 28 U.S.C. § 1331.
RELEVANT FACTS
The background of this case has been thoroughly set forth in previous orders by this court. Additional facts are needed, however, to determine whether Waste Management successfully structured an asset purchase of substantially all the assets of Waste, Inc. so as to avoid any liability for cleaning up the former Waste, Inc. Landfill (the "Landfill") that is the subject matter of this suit. In the late 1970s, Waste Management built and then began operating a landfill in LaPorte County, Indiana. (Def.'s Mem. at 2.) Waste Management had excess capacity in this landfill, so it began looking for more customers in the Michigan City area. In 1981, Waste Management entered into an agreement with Waste, Inc. to purchase its contracts with customers and the Waste Inc. hauling assets. A deal was finalized and went into effect March 1, 1982. Although the physical assets of Waste, Inc. were only worth about $300,000 at the time, Waste Management was willing to give publicly traded Waste Management, Inc. stock worth $700,000 for the assets, presumably to gain the valuable customer contracts.
Waste Management made it clear to Mel Harlib, the owner and sole shareholder of Waste, Inc., that it did not need or want the Landfill, and that the deal could not go through until Waste, Inc. disposed of it. Therefore, Harlib set up a separate corporation, Land Reclamation Corporation, and transferred the Landfill to this new corporation. There is no evidence in the record that any consideration was paid for the Landfill, or that Land Reclamation had any assets other than the Landfill, even though Waste, Inc. had executed an Agreed Order with the State of Indiana in 1981 to close and cap the Landfill. (Report of Pl.'s Expert, Daniel P. Dozier, at 5.) The stock that Waste Management paid for the assets of Waste, Inc. was distributed to the sole shareholder, Mel Harlib, and ended up in his personal investment account instead of being used to close the Landfill and comply with the Order. Mr. Harlib did attempt to comply with the Order, and loaned money to Land Reclamation for that purpose, but eventually he gave up the effort and in 1985, the Environmental Protection Agency got involved.
Specific language in the Asset Purchase Agreement excluded the Landfill from the transaction between Waste Management and Waste, Inc. However, Waste Management did have some involvement with the site in that it had agreed to provide clay to Waste, Inc. to comply with the 1981 Order. It honored this commitment, and provided additional clay to comply with a 1982 Order, even though it did not believe it was legally required to do so. Waste Management had additional connections to the site during a month transition period beginning January 1, 1982, until it began hauling the waste from its new Michigan City customers to the landfill in LaPorte around the end of March. Because there are factual disputes about this transition period, both parties have excluded it from their motions for summary judgment. The issue currently before the Court is whether Waste Management is liable not only for its own participation at the site, but also for the activities of Waste, Inc. on a theory of direct assumption of liability, or alternatively as its successor.
STANDARD OF REVIEW
Both parties in this action have moved for summary judgment pursuant to Fed.R.Civ.P. 56. The standard a court employs in reviewing a motion for summary judgment is well-established. Summary judgment is proper only if the record shows that there is no issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). To determine whether a genuine issue of material fact exists, the court must construe all facts in the light most favorable to the non-moving party and draw all reasonable and justifiable inferences in favor of that party. King v. Preferred Technical Group, 166 F.3d 887, 890 (7th Cir. 1999) (citing Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970).
Where cross-motions for summary judgment are involved, the court looks to the burden of proof that each party would bear on the issue at trial, requiring that party to go beyond the pleadings and affirmatively establish a genuine issue of material fact. Santanaella, 123 F.3d at 461 (7th Cir. 1997). The court extends to each party the benefit of any factual doubt when considering the other's motions. Buttitta v. City of Chicago, 803 F. Supp. 213, 217 (N.D.Ill. 1992), aff'd, 9 F.3d 1198 (7th Cir. 1993). However, the court is not required to grant judgment as a matter of law for one side or the other, but may deny them both. Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir. 1993); Judsen Rubber Works, Inc. v. Manufacturing, Prod. Serv. Workers Union Local No. 24, 889 F. Supp. 1057, 1060 (N.D.Ill. 1995). The court must evaluate each party's motion on its own merits, resolving factual uncertainties and drawing all reasonable inferences against the party whose motion is under consideration. Heublein, 996 F.2d at 1461; Judsen, 889 F. Supp. at 1060; Buttitta v. City of Chicago, 803 F. Supp. 213, 217 (N.D.Ill. 1992), aff'd, 9 F.3d 1198 (7th Cir. 1993).
DISCUSSION
Initially, the Plaintiffs in this case had over sixty defendants in their sights for contribution under CERCLA. Most have settled, but it appears from the record that Plaintiffs have succeeded in collecting little more than half of the more than $11 million already spent cleaning up the site, and according to the Defendants, they are running out of targets. However, the Plaintiffs still have the two Waste Management Defendants in their sights. They have advanced two theories of liability that would enable them to bag Waste Management as successor to the liabilities of Waste, Inc., the primary owner/operator of the Landfill. The stakes are potentially quite high.
The Plaintiffs' first theory is contractual and based on assumption of liability language in the Asset Purchase Agreement (the "Agreement") between Waste, Inc. and Waste Management. The second theory is based on state law governing successor liability. The Plaintiffs allege that Waste Management's purchase of the assets of Waste, Inc is not covered by the general rule that a purchaser of assets does not acquire the liabilities of the corporation, but rather falls within the exceptions giving rise to successor liability. This second theory requires a highly factual inquiry that is not appropriate for resolution on a motion for summary judgment. However, because the Court finds that the first issue is dispositive, it unnecessary to delve into the complexities of corporate successor liability.
The Waste, Inc. Sales Agreement contains a choice of law provision stating that the Agreement is to be "construed and enforced in accordance with the laws of the State of Illinois." (Agreement at § 19.) The Seventh Circuit discussed the application of Illinois contract law in the context of successor liability for an environmental cleanup in an opinion issued on June 27, 2000, Maytag Corporation v. Navistar International Transportation Corp., ___ F.3d ___, 2000 WL 823452 (7th Cir. (Ill.)). In Maytag, the primary issue was whether a corporation reorganized in bankruptcy could be held liable for cleaning up environmental contamination on a site that it owned and operated before the bankruptcy, but which was sold as part of the reorganization. Id. at *2. While bankruptcy is not an issue in the case before this Court, Judge Easterbrook's discussion of the liability of the asset purchasers is instructive. The Court observed that the previous bankruptcy had no bearing on the asset purchasers, whose recovery depended on the terms of the sale which occurred after the end of the bankruptcy. The Court stated, "Lines of business may be spun off with or without the possibility of deferred liability for cleanup expenses." Id. at *3 (citations omitted).
Therefore, the Court must look to the terms in the Asset Purchase Agreement to determine whether Waste Management purchased the assets of Waste, Inc. "with or without the possibility of deferred liability for cleanup expenses." The Seventh Circuit uses a "four corners" rule to interpret contracts when applying Illinois law. See Bourke v. Dun Bradstreet Corp., 159 F.3d 1032, 1037 (7th Cir. 1998). "As the Illinois Supreme Court recently restated this rule: `The terms of an agreement, if not ambiguous, should be generally enforced as they appear, and those terms will control the rights of the parties.'" Id. (citing Dowd v. Dowd, Ltd. v. Gleason, 693 N.E.2d 358, 368 (1998) (citations omitted). The threshold inquiry under the Illinois "four corners" rule is whether the contract is ambiguous. Id. (citations omitted). Neither party alleges that the contract is ambiguous, but they disagree as to the correct interpretation of the language. The relevant language comes from different provisions in the Documents of Closing of Sale of Waste, Inc. to Waste Management, Inc. dated March 1, 1982, but when pieced together, the Court finds that the meaning is clear and unambiguous. The relevant language is as follows:
2. PAYMENT OF CONSIDERATION
(b) Buyer shall, at the Closing, assume, pay, discharge or perform (as obligations become due) all of the following debts, liabilities, contracts, leases, commitments and other obligations, absolute or contingent:
(i) The debts, liabilities and other obligations of SELLER set forth on the Balance Sheet as well as those debts, liabilities and obligations incurred in the ordinary course of business from the date of the Balance Sheet to the Closing;
The Balance Sheet is attached as part of the closing documents and labeled Exhibit "A". The Table of Contents says that the Balance Sheet is on page 3, the Statement of Changes in Financial Position is on page 4, and the Notes to the Financial Statements is on page 5. These documents were prepared by Crowe, Chizek and Company, Certified Public Accountants, on February 1, 1982. At the bottom of pages 3, 4, and 5 is the statement, "The accompanying notes are an integral part of these financial statements. See independent accountants review report." The relevant note is Note 8 on page 8, which reads as follows:
NOTE 8 — CONTINGENT LIABILITIES
The Company is under a closure order from the Indiana Health Department. The closure order also requires the Company to make certain improvements to the property. The Company is in the process of negotiating with the Indiana Health Department relative to the amount and type of improvements.
At oral argument, Waste Management asserted that this Note was not part of the Balance Sheet, since it was not specifically incorporated in the Balance Sheet as were some of the other Notes. This argument is not persuasive for two reasons. One is that some of the Notes are clearly explanatory of specific items on the Balance Sheet, while others are general explanations that don't relate to a specific item. For example, Notes 1 and 2 dealing with Tax Credits and Accounts Receivable do not appear on the Balance Sheet, but are nonetheless an integral part of that document, as the explanatory note affirms. The second problem with Waste Management's argument is that the footnote to the Balance Sheet states that the Notes are an integral part of the Balance Sheet. The Court finds that these statements are clear and unambiguous, and reasons as follows: 1) Waste Management agreed to assume the liabilities on the Balance Sheet, absolute or contingent; 2) the Notes are an integral part of the Balance Sheet; 3) according to Note 8, compliance with the closure order from the Indiana Health Department was a contingent liability; 4) therefore, Waste Management agreed to assume Waste, Inc.'s liability for compliance with the closure order, in the event Waste, Inc. failed to do so.
This reading of the Agreement is supported by an indemnification clause which states:
9. INDEMNIFICATION OF BUYER.
SELLER and HARLIB agree to defend, indemnify and hold BUYER and its officers, directors and controlling persons harmless up to an amount not to exceed $700,000 (except for indemnification resulting from claims arising out of the operation of the Landfill for which the indemnity hereunder shall be unlimited) against and in respect of:
(a) Any and all duties, obligations or liabilities for which BUYER may become legally liable or which BUYER may be required to pay, arising out of any liability, obligation or duty of SELLER or HARLIB . . .
(Agreement at § 9). It appears from this indemnification provision that the parties contemplated the possibility that the Buyer, Waste Management, might become liable and have to pay for claims "arising out of operation of the Landfill," and they agreed to allocate that risk to the Seller, Waste, Inc., and to Harlib.
Waste Management also argues that even if Note 8 is a part of the Balance Sheet, the course of dealing of the parties indicates their intent was just the opposite, that Waste Management was not assuming any liabilities for the Landfill. To support this argument, Waste Management points to the fact that Mel Harlib, the owner and sole shareholder, spent several more years and a substantial sum of money attempting to comply with the order before finally giving up in 1985. In addition, before the asset purchase could close, Waste Management insisted that Waste, Inc. get rid of the Landfill, presumably to make sure that Waste Management did not get stuck with liability for the closure. Finally, Waste Management argues that the equities weigh in favor of finding they did not assume liability, because their purchase of the assets made it possible to close the Landfill by providing Waste, Inc. with the money to comply with the order, and by taking the trash elsewhere.
Waste Management's equitable argument is not persuasive either, because they did not, in fact, make sure that the money paid for the assets was used to close the Landfill. Instead, they intentionally structured the deal in a way that made it possible for Mel Harlib to distribute the $700,000 worth of Waste Management stock to himself as sole shareholder because Waste, Inc. no longer owned the Landfill. If Waste Management had made sure at the time that the valuable consideration it paid for Waste, Inc.'s assets and customer contracts was used to properly close the Landfill, then an expensive cleanup and lengthy litigation about who must pay for it could have been avoided.
The language and course of dealings of the parties to the contract does reveal an intent to structure the asset purchase in such a way as to prevent liability for the Landfill from passing to Waste Management. This was to be accomplished by transferring the Landfill to Land Reclamation, which the record indicates was nothing more than a shell corporation. Still, the Court finds, based on the clear, unambiguous language of the Asset Purchase Agreement, that Waste Management assumed whatever liability Waste, Inc. had at the time, including the contingent liability for the Landfill mentioned in Note 8. The extent of that liability requires the resolution of factual issues that are not currently before the Court.
CONCLUSION
For the foregoing reasons, the Plaintiffs Motion for Partial Summary Judgment of Liability against Defendant Waste Management of Indiana, L.L.C., is hereby GRANTED, and the Defendant's Motion for Partial Summary Judgment on the issue of liability is hereby DENIED.